I am not a lawyer or tax expert, but having pursued the tax implications of authors selling books through Amazon have led me to believe the following.
The US government has tax treaties with many nations, including Canada, that provide an expemption from US tax withholding for independent contracting authors of literary works.
Amazon withholds 30% of book royalities automatically, as required by US law, unless advised of the exemption status of the foreign author.
For Canadian authors of Amazon Kindle books, their expemption status is covered by Article XII, paragraph 3, of the US-Canada Income Tax Convention (US-Can Tax Treaty).
To receive the exemption, individual Canadian authors paying taxes in Canada and publishing through Amazon, who are not residents of the US, nor maintain a US point of business must obtain an Individual Taxpayer Identification Number (ITIN) from the US Internal Revenue Service (IRS) by filling out form [b]Form W-7, Application for IRS Individual Taxpayer Identification Number[/b], and submitting it to the IRS with the required Identification.
When the ITIN is received (60-90 days), then [b]Form W-8BEN, (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding)[/b] must be completed to claim the tax treaty benefits.
Since the author is also an independent contractor, then[b] Form 8233, (Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual)[/b] must also be completed to claim the withholding exemption.
Both these forms should then be submitted to the withholding agent (Amazon: DTP Admin) who should then cease the 30% withholding of future royalities, and remit immediatelly, all tax withholdings currently being held.
A similiar procedure may be followed by authors from other countries which have a tax treaty with the US.
The www.irs.gov website has a great deal of interesting reading, and will take about a day to cover thoroughly. Take your time, and read carefully, there are many conditions that may apply to individual authors depending on their individual circumstances. The above, should apply to most Canadian authors earning less than $10,000/year from Amazon Kindle books.
Caution: if you don't apply for an ITIN and claim an exemption from withholding, then you must file a US Income Tax form by 15 Apr following the end of the taxation year, Complete Form W-7 (above), pay the US taxes owing, and then sort out the withholding problem.
It's definately simpler and easier to obtain the withholding exemption, and report the income on your Canadian Income Tax. If any of the above is incorrect, please post the correct procedure!
There's a Catch 22. Most author-publishers won't be able to obtain the ITIN because they don't have a statement that they require one in order to report their US income. Unless you are lucky or unlucky enough to be a veteran of the IRS web, you won't have the ITIN, and since this is the beginning of a new tax year neither will you be obliged to file taxes for 2009, so you can't get an ITIN. Not until April 2011 are taxes due for this year. One would hope that Amazon's lawyers have anticipated this problem, and have already prepared a satisfactory piece of boilerplate for international publishers to submit to the IRS. But somehow I doubt it.
Thanks for the reply! I think your catch-22 is connected with the assumption that the W-7 form accompanies an income tax return. That's not necessarily required.
However, your observation has given me a heads-up and I've read the instructions closer (which I failed to do when I found box a.on the W-7) and it now appears that obtaining an ITIN is not necessary, if the W-8BEN form is submitted to the withholding agent before royality payments are made.
If royality payments have been made, and the 30% withholding applied, an income tax report is necesary, and must be accompanied by a W-7 to apply for an ITIN and recover the tax withheld. However, providing a W-8BEN to the withholding agent should stop future withholding.
It appears that providing the W-8BEN to the withholding agent (Amazon) is all that is required to bring the claimed exemption to their notice, and that an ITIN (or TIN) is not required although there is a box on the form for it. A W-8BEN without an ITIN, is valid for three years from the date of submission.
Form 8233 should also be completed and submitted to the withholding agent with the W-8BEN, and a return copy of this form should be requested with Part IV of the form completed and signed by the withholding agent.
If desired for future use, a copy of the withholding agent signed Form 8233, and the W8-BEN form, can then be attached to the W-7 form with box a. and h. checked and referencing Exception 1d-Royalities, and the Tax Treaty on which the exemption is based, and submitted with proper identificion to the IRS to obtain an ITIN.
"Expiration of Form W-8BEN. Generally, a Form W-8BEN [b]provided without a U.S. taxpayer identification number (TIN)[/b] will remain in effect for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect."
In the search box on any of the IRS website pages, do a search fon "W-8BEN. It should return four search results that should be read. Two are dowloaded PDF documents, and the other two are:
"5. How should the withholding agent properly document the foreign status or treaty claim of a foreign person
Question 22: Must we obtain documentation from a foreign person to support its claim of foreign status or treaty eligibility?
Answer 22: In order to reduce the amount that is required to be withheld on a payment of U.S. sourced FDAP income to a foreign person (foreign vendor), or to exempt such a payment from withholding tax, the withholding agent must have documentation from the foreign vendor to certify its non-U.S. status and, if applicable, its eligibility for the treaty benefits claimed. Such documentation must be submitted by the foreign vendor in the form of a Form W8-IMY Form W-8 or Form 8233.
Question 23: Which forms would be most commonly used by foreign vendors?
Answer 23: Form W-8BEN (Beneficial Owner)..., and Form 8233.
Question 24: When should Form W-8BEN be used by foreign vendors?
Answer 24: Form W-8BEN should be used by the foreign vendor to certify that it has non-U.S. status. If a treaty claim is made by the vendor Part II of the W-8BEN must be completed to be eligible for the treaty benefits."
[b]In Summary[/b], if you haven't yet received any royalities, submit to dtpAdmin Form W-8BEN. If you think your royalities may last more than three years, submit form 8233 to dtpAdmin and request the return of a copy with Part IV completed and signed.
If you have already had tax withholding applied to your royality payments, submit W-8BEN and Form 8233 to dtpAdmin, and complete Form W-7 and attach it, and copies of W-8BEN, 8233, and Tax Treaty reference to your US tax report, and request a return of withheld tax payments.
Please comment on any errors or twists which apply to the above. I haven't checked, but is there a US Postal address for dtpAdmin or the appropriate Amazon department where the above forms should be submitted?
It boggles the mind, but you have obviously done your homework, and it would be a great service if DTP Guy would flag your analysis and put it up there in the FAQ. (Especially if it works out in practice!)
Ok, I've submitted form W8-BEN to dtpAdmin. I'll try and keep this thread advised of what transpires.
It's all that should be necessary to prevent the 30% withholding tax being applied to my first, recently uploaded book.
The IRS form has interactive fields so it's easy to fill in the necessary information, however the signature and date fields are not interactive, and require some manipulation to insert a digital signature and date.
I saved the completed pdf form as a graphic file (tiff), and loaded it into Paint.net. I also created a signature and date as graphics, and merged them with the completed form in the appropriate places.
I then saved the composite graphic, loaded it into OpenOffice Writer, and then exported it as a PDF file.
The final product was as completed and signed W8-BEN.
Completing the W8-BEN is all that is needed for any foreign, "non-resident alien" to obtain an exemption providing there is a treaty between the U.S. and the foreign country that reciprocally allows the taxation of literary royalties in the country where the author resides, rather than where the royalties are earned.
I hope these posts have helped you get your money.
This is absolute crap! Why doesn't Amazon just supply these forms when we sign up? And after we sign the form (no I'm not going to all that trouble to do electronic signatures, sheesh) where do we fax it?
And why don't they just make it easy and do PayPal payments.
Actually I've just decided to go the easy route and withdraw my books. These people are hopeless.
Don't be discouraged by the IRS red tape. Amazon is just as much a victim as we are.
Amazon hasn't done its homework, and didn't anticipate this problem when they relaxed the requirement for a US address for authors (or maybe they did?), so they're not ready to handle it. Maybe they don't want Canadian or other foreign authors?
I'm still trying to find my way through the swamp and it appears that Amazon won't accept a W8-BEN without an ITIN and they're probably right.
In my own quest to get a tax withholding exemption and receive all my royalties, I'm now trying to get a statement from Amazon attesting to the necessity of a ITIN I can attach to a W7 form in place of a tax return in order to apply to the IRS for an ITIN. Then it's back to submitting a W8-BEN to Amazon.
Writing is as much about business as story telling, and authors should realize the writing craft is more than banging out something on their computer. Fighting to get what publishers owe you is as important as writing - otherwise why offer books for sale.
Dig in and help sort out this mess by checking the IRS website for tax treaties with your country, and if you think you're eligible, fill out the forms and send them in to the IRS and Amazon.
I may be wrong, and I apologize if I am, but cub06h you have so many posts, I suspect you are associated with Amazon. Does your comment "Good idea. Anyone else?" reflect company sentiments?
Ok, the convolutions of the IRS paperwork have misled me.
It does appear I must now complete a form W-7 in order to apply for an
ITIN before I can submit the W8-BEN to Amazon as the withholding agent,
to claim Tax Treaty benefits and an exemption from withholding taxes.
the W-7 form must be accompanied by a Tax Return. However, since I have
not yet received any royalties from Amazon, and must submit the W8-BEN,
which requires the ITIN, BEFORE any royalties are paid by Amazon,
(a Catch-22) then because of the instructions for the W-7:
*"There are exceptions to the requirement to include a U.S. tax return.
If you claim one of these exceptions, you must submit the documentation
required instead of a tax return. See the Exceptions Tables beginning
on page 6"* (of the W-7 Instructions).
Therefore, in order to apply and obtain an ITIN without an accompanying
Tax Return, under Exception Table #1 because of:
*"1(d) Individuals who are receiving distributions during the current tax
year of income such as pensions, annuities, royalties, dividends, etc.,
and are required to provide an ITIN to the withholding agent (for
example, an investment company, insurance company, or financial
institution, etc.) for the purposes of tax withholding and reporting
I now require from Amazon:
*"1(d) A signed letter or document from the withholding agent,on official
letterhead, showing your name and evidencing that an ITIN is required to
make distributions to you during the current tax year that are subject
to IRS information reporting or federal tax withholding."*
So, I need from Amazon, an actual letter (not an e-mail) attesting to
the requirement for an ITIN that I can attach to a W-7 in lieu of a Tax
Return. I suppose a pdf attachment to an e-mail, that I can print locally,
will suffice provided it is on the Amazon letterhead.
I received this reply from Amazon:
"I received a copy of your request to obtained a signed letter from Amazon.com in order to apply for an ITIN. Amazon.com cannot produce a commitment letter you requested; however, once an account is created we can provide you with an account confirmation. If you need further assistance with this request, we ask that you contact a tax professional."
No reason was given by Amazon. All I needed was an official statement that my book was listed on Amazon.com, that royalties might be earned, and that withholding of taxes would occure. Why this couldn't be provided I don't know. The suggestion I contact a "tax professional" is just a brush off.
So, I guess my next step is to bring this situation to the attention of the U.S IRS and Revenue Canada and seek their advise how I can apply the exemption provided by the Tax Treaty between the two countries.
Since my goal is to take advantage of the Kindle market, perhaps I should put up a website and start selling my books myself, and keep the whole retail price? I think I'll make that a parallel project to securing an ITIN and a exemption from the withholding tax.
I'm beginning to believe selling books on Amazon.com is not a good idea for foreign authors!
[i]the W-7 form must be accompanied by a Tax Return.[/i]
Yes, that's the Catch 22 I've referred to in earlier posts. I thought you'd found a way around it!
Tony, I doubt you will find the IRS more forthcoming than Amazon. Quite the opposite, I should think.
But hasn't Amazon basically solved the problem? You can publish without the tax ID. Amazon will withhold 30 percent of royalties against taxes owed. Note that the money goes to the IRS, not to Amazon. (Hey, with Trillion-Dollar Barack at the helm, we need every dollar we can get!)
[i]Now you need to file a 2010 tax return next April 15![/i] (April 15, 2011, I mean.) Haven't you solved the Catch 22? To file a return, you need a tax ID, so the IRS will give you one.
It just won't give you one [i]now[/i], because you don't need it, having had no US income in 2009. It makes great good sense, if you make due allowance for the bureaucratic mind.
(And no, I don't have anything whatever to do with Amazon, except to use it to buy books and sell books. I do a lot of both, and I enjoy this forum. I enjoyed it even more when Mike posted regularly, but unfortunately he seems to have gone back to writing books.)
There[u] [b]is[/b][/u] a way around the Tax Return requirement, it's in Exception 1(d), but it requries a letter head statement from the tax withholder substantiating that tax is being withheld.
The IRS has provided the work-around, but Amazon has declined to provide the necessary documentation as required in 1(d).
I see no reason to have 30%withheld from royalties, then file a US Tax Return to get the royaltity returned, then submit a W8-BEN to Amazon to stop further tax withholding.
The Canada-US tax treaty says that taxes on literary royalties are only payable in the non-US resident author's country, therefore no US tax return should be necessary, and no US withholding taxes should be applied.
Amazon is making it impossible to use the IRS exception to providing a tax return with the W7 form.
All that should be needed to stop withholding is the filing of a W8-BEN form with Amazon to claim the benefits of a Tax Treaty if one exists between the US and a foreign country.
Amazon is making the situation impossible to comply with the IRS rules. Maybe the IRS won't assist, but I'm sure (as a retired Public Servant and citizen) that Revenue Canada will help in seeing that provisions of a Tax Treaty are followed. It's a diplomatic issue.
In the meantime, I won't be uploading any more kindle books, nor buying a Kindle. There's nothing preventing a foreign author from creating books in kindle format and selling them on their own website, or finding another e-book retailer. Me, I'm building an e-book website!
Amazon is nothing more than an online retail book store. Publishers usually set the rules for retail outlets because they provide the content which is sold. Amazon wishes to reverse this relationship and control e-book publishers (authors) and set the terms of their common commercial endevours.
To further their disire to control and dominate the e-book marketplace, Amazon has produced the Kindle Reader and adapted an e-book format for it, although the original .mobi format is fully compatible with the Kindle Reader and can be created using free, downloaded software. Customers don't need to buy Kindle books from Amazon.
Because of Amazon's marketing, publishers wish to provide content for the Kindle Reader, and individual authors see it as an easier publishing process than traditional print. However, Amazon is not the only e-book retailer, and publishers (authors) can perhaps sell their work more profitably, and with less trouble elsewhere. US publishers (authors) are already within the grasp of American bureauracy but foreign publishers (authors) are not.
Amazon would like to expand its Kindle business worldwide, and is trying to attract foreign publishers (authors) by eliminating the need for a US address for "non-resident alien" publishers and authors. I'm sure Amazon believes foreign authors will attract readers outside the US and increase sales of the Kindle Reader and Kindle books in other countries.
However, as every "non-resident alien" will understand, few Americans have an understanding of the world outside their borders, where no one believes everything should be done the "American way." The folks at Amazon are truly Americans at their navel-gazing best, and see no reason to accommodate "un-american" processes, procedures, treaties, and authors. Amazon has no wish to undertake the administrative workload necessary to deal with foreign authors and international Tax Treaties, it just wants a big, fat (how typically american) share of foreign produced profits, because that's the "American way."
The Kindle reader is a handy gadget, and the Amazon wireless purchasing methodology is a very attractive marketing process. The wireless G3 marketing of content is the best feature of the Kindle reader, and it's what attracts me most as an author, publisher, and reader. However, Amazon doesn't have a monopoly on this process and other e-book retailers will adopt it soon.
Authors and publishers resident outside the US must decide if the marketing ability of Amazon is sufficient to offset the 30% withholding tax and reduced royalties, and place themselves under the tax control of the IRS where they must file an annual Income Tax Return, entrusting their private and personal information to the US Government, keeping in mind that failing to file a tax return on US earnings is a chargeable offence with a $1000 fine for each year the return is not filed (if you don't file your return you better not travel to the US or any of its possessions - even accidently if your flight is re-routed over US airspace or lands at a US controlled airport), and which could lead to serious consequences for a careless or forgetful author.
As an old bureaucrat, I understand and can cope with administrative red-tape, provided everyone does their part of the process. Amazon is refusing to do their part. Therefore I am sorry I cannot recommend "non-resident-alien" authors offering their books for sale on Amazon.com. It's a pity, because Amazon is a good marketing opportunity and process, provided foreign authors can stay out of the clutches of the IRS.
US authors selling in Canada must identify themselves as US Citizens, resident in the US, then claim an exemption according to the Tax Treaty, but the red tape of the W7 and the W8-BEN forms is not necessary. US authors only have to send proof of residence to Revenue Canada to be granted an exemption from the withholding tax.